RBI Proposes to Scrap ₹2.5 Lakh Crore Cap on Voluntary Retention Route

The Reserve Bank of India (RBI) has proposed removing the ₹2.5 lakh crore limit on investments under the Voluntary Retention Route (VRR). Governor Sanjay Malhotra announced the proposal on 6 February during the Monetary Policy Committee (MPC) review. 

If implemented, VRR investments will no longer have a separate overall ceiling. They will instead be counted within the category-wise limits that apply to foreign portfolio investors (FPIs) under the General Route. 

Scheme Launched in 2019 

The VRR was introduced in 2019 as an additional channel for foreign investors in the Indian debt market. It allowed FPIs to invest with fewer restrictions, provided they committed to retaining funds in the country for a specified period. 

The route was designed to encourage more stable foreign investment in government and corporate bonds. 

Majority of Limit Already Utilised 

The central bank said the scheme has seen steady participation from foreign investors. More than 80% of the ₹2.5 lakh crore limit has already been used. 

The high level of utilisation was cited as a reason for the proposed change. Aligning the route with the general limits is expected to remove the need for a separate aggregate cap. 

Part of Broader Plans  

The proposal forms part of the RBI’s ongoing efforts to improve the functioning of domestic financial markets. The central bank has been reviewing foreign investment frameworks to address operational issues and simplify structures. 

By shifting VRR investments under the general limits, the RBI intends to retain category-wise controls while removing the overall ceiling. 

Repo Rate Left Unchanged 

In the same policy review, the RBI kept the repo rate unchanged at 5.25% and maintained a neutral stance. Since February 2025, the central bank has cut the policy rate by a total of 125 basis points, with the last reduction announced in December. 

Read More: RBI Plans to Raise Collateral-Free MSME Loan Limit to ₹20 Lakh! 

Conclusion 

The proposal removes the separate VRR cap and places these investments within existing category limits. It is part of the RBI’s ongoing adjustments to foreign investment rules in the bond market. 

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